Consumer prices dip

factory production up

WASHINGTON — Consumer prices fell in May for the first time in nearly a year, and industrial production last month was twice as much as forecast, according to two reports released Wednesday.

The Labor Department said its consumer price index slipped 0.1 percent, the first drop since July 2004, and the Federal Reserve reported that industrial production jumped 0.4 percent. Economists had expected the index to remain unchanged and production to rise 0.2 percent.

Some economists said the decline in consumer prices won't be enough to keep the Federal Reserve from continuing to raise interest rates because labor costs are rising and oil prices have turned upward again. The Fed has raised rates by a quarter of a percentage point eight times since last June, to 3 percent. Its policymaking committee next meets June 29-30.

"The drop should do little to fuel expectations that the Fed can pause anytime soon, as energy prices are now bouncing back," said Mike Englund, chief economist at Action Economics LLC in Boulder, Colo.

But other economists said central bankers may be closer to ending their string of increases.

"The economy has absorbed a surge of prices, mostly energy related, and things are simmering down," said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio. The decline in prices may "cause the Fed to think it's reaching ... the point where it can move to the sidelines."

So far this year, consumer prices have risen at a 3.7 percent annual rate compared with a 5 percent increase at the same time last year. Core prices have advanced at a 2.4 percent annual pace, down from 2.5 percent in the first five months of 2004.

In its report, the Fed said industrial production increased in May at the fastest pace since October. Work at factories, which accounts for almost 90 percent of the survey, rose 0.6 percent. Utility production slid 0.7 percent, while mine production rose 0.1 percent.

The proportion of industrial capacity in use rose to 79.4 percent from 79.1 percent in April.

"All the production increase was in the manufacturing sector," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "There was broad-based strength in consumer goods, business equipment and defense."